Basics for Landlords

Transcription

1 Basics for Landlords Evan Anderson Realty Executives 4500 S. Lakeshore Dr. #120 Tempe, AZ Renting Your Personal Residence Home for the First Time? If you are renting a home for the first time, especially if the home is a personal/primary residence there are a few important things to understand. First of all, with time, homes age and depreciate. This is true if a home sits empty or is occupied by tenants. And no matter how conscientious the tenants, they will probably not care for and love the home the way you do. It has been my experience that it may be a little unsettling when you see your investment home again for the first time in years, like seeing an old friend who has gone grey and put on a few pounds since your last visit. Of course with proper and preventative maintenance, homes, like people, will age much better. Also, rental homes are not an expense-free undertaking. Homes require regular maintenance and replacement of mechanical items (water heater, A/C, garbage disposal, appliance, toilets etc.) Obviously, the more you as a landlord are willing to maintain the premises (think new paint, new carpet and maintaining mechanical systems when needed etc.), the better your home will age over the years and the happier the tenants will be. In addition, tenants do like to make the home their own while occupying, so wild or designer paint colors (or unusual carpet colors) in bedrooms and living areas are difficult to market. Sometimes rooms may need to be repainted to neutral colors in order to rent the home. Renting an Investment Home? If you are an investor or if you ve rented one of your homes before, you already understand that rental properties require regular maintenance including mechanical servicing and new paint and carpet every 3 to 5 years. Items I Will Need From You the Owner/Landlord: o House keys (at least 2) o Mailbox keys and mailbox location/number (if applicable) o Garage door openers o Copy of CC&Rs (if applicable) o HOA Information o W-9 Completed for tax reporting purposes o Social Security or EIN (Employee Identification Number) verification (can be photocopy of SS Card, Incorporation Papers or Tax Return/Record anything with the owner name and either SS or EIN # on it) o Home Warranty Information (if applicable) o Hazard Insurance Policy and Agent Information. What are Your Rights? What about the Rights of the Tenant?: In Arizona there is a comprehensive document entitled The Arizona Residential Landlord And Tenant Act that spells out the expectations and rights of the both landlords and tenants. It can be found online and/or I will provide an electronic copy for you. Taxes and More Taxes: Rental properties have tax consequences in a variety of ways. Most cities charge rental tax and properties in Maricopa County must be registered with the County Assessor s office. Also, rental/income producing properties are treated differently than primary residences. Income from the property should and/or will be reported to the IRS. Please consult a tax accountant or attorney to find out if the investment can be depreciated and what can be deducted from rental income.

2 Registering Your Rental Property: You are required to register your rental property with the County Assessor. There is a nominal fee and the property can be registered online or by mail-in application. Link for the County Assessor s Registration of Rental Property page: Insuring Your Property: Before renting your home, please make sure you have notified your insurance agent about your intent to rent the property and ask if your policy type and coverage needs to change. Also, ask about liability coverage (if a tenant or guest is injured at the property). A few dollars extra in insurance will give you more piece of mind and protection. Security and Other Deposits: I collect a security deposit of approximately 1 months worth of rent, a cleaning deposit based on the size of the home and a pet deposit if you allow pets. Generally, I make all three deposits 100% refundable as in incentive for the tenant to return the home in rent ready condition so they can receive all or most of their deposit back. Despite the term refundable, all refundable deposits can be kept in part or whole if there for damages, cleaning, unpaid rent or fees. Financial Reserves: If all goes well, each month you should receive an owner disbursement by the 15 th of each month. On occasion, a tenant could be late with the rent and this payment may come after the 15 th. In the case of a potential eviction, you may not receive a rent payment for several months depending on the circumstances. Because of the intangibles, it is wise not to count on each month s disbursement to pay the same month s rent. It is recommended that you have at least 2 to 3 months worth of mortgage payment funds in reserve. Between Tenants: Although we do our best to keep the home occupied as much as possible, there is generally down time in between tenants. Homes that are tenant occupied are not shown as often as vacant homes for a variety of reasons. Even in the best-case scenario, time is needed to clean and make repairs when an existing tenant moves out. This means that there will be some time where the rental home is vacant during marketing. During this time utilities will need to be turned on so that potential tenants and their Realtors can flip on lights and not walk into a home that is 95 degrees during the summer. The water will also need to be turned on so landscaping remains watered. Financial Reporting: You will receive a quarterly statement of all financial activity in your operating account along with an accounting of all refundable deposits. The monthly disbursement you receive may vary from month to month depending on repairs and/or maintenance costs. You will also receive a Year-End Financial Statement along with a copy of the 1099 that will be sent to the IRS reporting your rental income. Maintenance: Generally, I will update you on repairs to the home via or your preferred communication method. I will contact you prior to any single repair exceeding $300. Repairs under $300 are considered routine and I ask that you give me authority to order those repairs without approval. I always try and get the best pricing available for the repair and have a list of preferred vendors that I have worked with for years. I do not receive any kickbacks or referral fees for the vendors and contractors that I recommend and use. To Warranty or Not to Warranty: Home warranties are insurance against systems failures to the home. A basic home warranty can costs between $350 to $450 with additional coverage available for various systems (such as pool, washer/dryer etc.). The service call for a home warranty ranges from $55 to $80 per visit. It is standard for the owner of the home to pay the service call. Home warranties do not cover every mechanical item in the home, but many issues related to Plumbing, Electrical, Heating and Cooling. The two items that usually cost the most to replace, the Water Heater and Air Conditioner, are covered by most home warranties (there are exclusions to the A/C replacement).

3 My job is made much easier when there is no home warranty on the home, but I am willing to work with a home warranty company for repairs if the owner prefers. Below are advantages and disadvantages for having a home warranty: Advantages: Can save you money if an item breaks down (i.e. a water heater costs $600 to $800 to replace with a home warranty you pay the service call fee). Peace of mind that some items are covered. Disadvantages: Like any insurance a HW doesn t cover everything that breaks down and they try and fix things no matter how old before replacing them. You can t choose your vendor (and I can t use mine). Service is generally slower with home warranty companies. In Arizona, this can be a real problem, especially if it is 110 degrees outside and the A/C goes out, a 2 day delay can be a problem. Warranty companies don t have to adhere to the Landlord Tenant Act, but landlords and property managers do. Service not always as reliable (Warranty companies often use newer start-up companies that may or may not have proper experience). HOA Violations: If your home has an HOA I ask that you notify the HOA that I am managing the property and that I be copied on any HOA violations. The most common violations are for weeds, trash cans left out and cars parked on the street overnight (if your HOA does not allow this). If the tenants are properly warned and notified about violations, I can collect fees from the tenant if they are assessed. Fortunately, HOA problems are rare if property notifications are given.

4 FAQ Landlords: Q: Who holds the security deposits? A: All non-refundable deposits are held by the owner. All refundable deposits including the security, cleaning and pet deposits are held in the Realty Executives Trust Account. Q: How often do tenants get evicted? A: Fortunately, this is rare. I have had to evict a few tenants over the years, but very few. In most cases, the tenant or tenants have lost a job and, once court action is taken, the tenants voluntarily vacate the property before final eviction. In some cases, the tenants have even paid the unpaid rent and fees to avoid a judgment on their credit report. Q: Do tenants often trash houses? A: No. Again, this is rare. With proper application screening, good tenants are generally the norm, not the exception. Although there is a possibility of a tenant trashing a home, my experience shows that the majority of tenants are good, hard-working, responsible people. Q: What type of screening is completed with the tenants? A: I perform a credit and full criminal background check. The report also contains an instant Eviction Search that shows court action taken to evict in the past. I also confirm employment and income reported and, if the tenant has recently rented another home or apartment, I request a rental confirmation history from the previous landlord. Q: Can I see the tenant s credit report? A: No. Privacy laws prevent me from sharing the credit report. Q: Should I have the tenant perform yard and pool service themselves and save the money? A: It depends. If a yard is easy care with few trees and little vegetation and no large lawn then yes, tenant yard care may be an option. Bottom line, tenants will not take care of the yard like you would. The same goes with a pool. I highly recommend that you maintain pool service. If a tenant lets the pool and pool equipment go, it could be expensive to have the pool brought back up to par. Another option is to write in the lease that tenants will hire a pool service and keep consistent service through their tenancy. My personal preference is to have yard and pool service included in the lease price. This eliminates a lot of problems down the road. Q: Can I perform repairs and yard work myself as the landlord? A: I advise that all repairs be completed by outside vendors and/or contractors. Placing yourself in the home of the tenant can create added liability for you and for me.

5 Q: Should I accept pets? A: The decision is yours, but you will limit the number of potential tenants by half if you don t accept pets. Some landlords accept pets but place a limit on the type, number or size of the pets. Q: Should I get a home warranty? A: Like any type of insurance, you need to weigh the risk-cost benefits. A home warranty can save you money if some mechanical systems are nearing the end of their life (A/C and Water Heater are the two biggies). The disadvantages of having a home warranty are lack of choice in the vendors/contractors and time to complete the repair. Home warranty companies randomly select vendors from a pool and it can take longer for a home warranty vendor to complete a repair. In the middle of the summer heat, a few days without A/C can be very inconvenient and even unsafe for tenants, especially with children.

6 Information and Items I Need from You (Please complete this form and return by fax, or mail) Name (s): Rental Address: Mailing Address: Landlord 1: Home Phone: Business: Cell: Landlord 2: Home Phone: Business: Cell: HOA Name HOA # Mailbox Location/Number Parking # Trash Pick-up Days Alarm Code/Information Utility Companies: Home Warranty Info: Yard Service: Pool Service: Insurance Agent:

7 Rent Ready and Ready to Go Checklist Rent Ready Is the home free of personal possessions? Is home repainted or are the painted walls clean and in good condition (no excessive holes, dirt or scuffs)? Is the carpet in decent to good condition and professional cleaned? Is the home professionally cleaned? Is the yard in clean, trimmed, and mowed and in good condition? Is the yard drip/sprinkler system up and running without leaks? Is the pool clean and in good condition? Is the pool equipment functional? Are the walkways and patios clean and presentable? Are all lights working? Are the A/C filters changed? Are all batteries working (fire alarms etc.) Ready to Go 2 House Keys 2 Mailbox Keys 2 Garage Door Openers (if multiple doors, openers for each door) Any manuals that may be useful to the tenants Instructions for pool equipment (if tenants cleaning pool) Drip system instructions (if tenant taking care of yard) Have you given me a copy of the neighborhood HOA CC&Rs (electronic copy preferred).

8 Have you spoken with your insurance agent and informed him or her that your home will be used as a rental home with tenants? Is your liability adequate? Have you requested that Evan Anderson and Realty Executives be named as additionally insured? Have you registered your property with the County Assessor as a rental property?

9 I have read and understand the items described in the Basic for Landlords information packet. Signature Date Signature Date